Hi i had a question that my fater had few shares and that he had got from the company he works and after he expired those shares were transferred to me. And later the company got merged from mindtree to LTI mindtree and the shares were aligned as per new company now if i sell the share what will be my capital gain kindly help in making me understand this
Ans: Firstly, I am sorry to hear about your father's passing. I appreciate you reaching out for help in understanding the capital gains on the shares you inherited.
Inherited Shares and Their Cost Basis
When you inherit shares, their cost basis for capital gains calculation is the market value of those shares on the date of your father's death.
Impact of Merger on Shares
Since Mindtree merged with LTI, the shares you inherited were converted to LTI Mindtree shares. For calculating capital gains, we consider the inherited cost basis and the conversion ratio provided during the merger.
Calculating Capital Gains
Let's break down the steps:
Determine the Inherited Cost Basis: Find out the market value of Mindtree shares on the date of your father's death. This is the cost basis for those shares.
Adjust for Merger: During the merger, Mindtree shares were converted to LTI Mindtree shares. The cost basis remains the same but is adjusted based on the conversion ratio.
Selling the Shares: When you sell the LTI Mindtree shares, the selling price is compared with the adjusted cost basis to calculate the capital gains.
Example for Better Understanding
Suppose your father had 100 shares of Mindtree.
The market value of these shares on the date of his death was Rs 1,000 per share. Therefore, the total inherited cost basis is Rs 1,00,000.
During the merger, Mindtree shares were converted to LTI Mindtree shares at a specific ratio (e.g., 1 Mindtree share to 1.2 LTI Mindtree shares). So, you now have 120 LTI Mindtree shares.
Suppose you sell the LTI Mindtree shares at Rs 1,500 per share. The total selling price is Rs 1,80,000.
The capital gain is the difference between the selling price and the inherited cost basis: Rs 1,80,000 - Rs 1,00,000 = Rs 80,000.
Important Considerations
Long-Term vs. Short-Term Capital Gains: Since these shares were inherited, they are considered long-term capital assets if your father held them for more than one year before passing away. Long-term capital gains tax rates apply.
Steps to Ensure Accuracy
Verify Dates and Values: Ensure you have accurate records of the date of inheritance, market value on that date, and the merger details.
Consult with a Tax Professional: Given the complexity of tax laws, consulting with a certified tax professional is advisable. They can provide precise calculations and tax planning.
Final Insights
Inherited shares have a cost basis based on the market value at the time of inheritance. Merger adjustments must be considered for accurate capital gains calculation. Proper record-keeping and professional advice ensure accurate and tax-efficient handling of these transactions.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
